Posted on: July 1, 2014
Non-recurring engineering (NRE) covers the research, design, development, testing, and other functions required when coming up with a new product or custom design. It includes the up-front costs incurred during the new product development.
The NRE is a onetime cost usually associated with the design, development or manufacture of a new design, product or customized equipment. The term is used across several industries and may thus mean different things depending on whether it is a new process, product, software or strategy such as a new supply chain.
Typical costs are; the proprietary capital equipment costs, supplies, wages, etc. These costs are only required in the pre-production phase and are not required once the production of the new item begins. It can be considered as the start up costs required to start producing a product, and no longer incurred once production begins, hence non-recurring.
A customer requiring a new product or modification should be ready to pay for the NRE costs or any extra costs incurred during the modification.
In the electronics industry, NRE in the PCB manufacturing may refer to the specific costs for setting up a PCB assembly. This cost is made up of the tools and programming costs. However, NRE costs do not apply to the regular per-unit cost of the products.
The NRE process
- System definition: This is the critical stage that defines the functions and performance of the proposed product. This helps in determining the product specifications.
- Design and development to come up with:
- Product design, NRE requirements and costs
- Form factors, components, architectural requirements, etc.
- Technology roadmap to reach the final phase of developing the new product
- Platform design process: This comprises of elements such as project plan, statement of works, review of the plan by the customer, etc. This is followed by the developing and reviewing of final specifications, new block diagram, bill of materials, design review and more.
Once the design and specifications has been approved, the prototypes are produced and delivered to customer and released after approval.
Consideration during the NRE process
- The NRE is either performed internally within the organization or outsourced to third party service providers. The decision is often based on the capacity, skills and experience required to design the product.
- The cost of the NRE phase should be considered to ensure that there is high demand or ready market for the product, so that is it’s profitable over its lifetime. The NRE costs are usually used when there is no alternative solution. The charges depend on a number of factors influenced by the nature of the new product and typical determinants include:
- Complexity of the new product design
- Amount of work
- Technology chosen
- Type of packaging
- Special procedures required
- Skills required
Figure 1: Cost of changing or building a new product – Image Credit
- The ownership of the new product design should be well laid out in the agreement. Either the manufacturer or customer will own the design depending on who meets the costs. If costs are shared, the manufacturer and customer may enter into an agreement of shared ownership.
When is non-recurring Engineering used
- New product that differs in functionality with the other standard products from the manufacturer
- When adding a capability or feature to a product as requested by the paying customer
- When a manufacturer stops supporting a product and a customer needs to modify the product and continue using the newer version.